Snapchat Mulls Raising Money at $3 to $4 Billion Valuation

Just months after raising $60 million at a $800 million valuation, mobile messaging service Snapchat is mulling an even bigger fundraising round.

Amid intensifying interest from deep-pocketed investors, the startup is looking to raise up to $200 million at a valuation of $3 to $4 billion, according to people briefed on the matter. The Venice, Calif.-based company, which just received the funds from its earlier round, is still assessing how many shares to offer and how much will come from employees and early investors.

A Snapchat spokeswoman declined to comment.

The talks are a sign of increasing frothiness in the market for mobile apps. Messaging startups have exploded over the last two years, and have rapidly amassed giant user bases. The Asian messaging app Line, which has some 270 million users, is reportedly mulling an IPO.

Snapchat, which allows members to share messages that disappear after a few seconds, doesn’t make money yet. But it has been on a tear this year as more and more users flock to the service.

In September, the service reported that it was processing some 350 million “snaps,” or messages, per day, up from 200 million in June. According to one person briefed on the matter, the service is not quite the size of other large messaging apps, but users come back to it frequently. Its user base also skews young – with strong traction among high school students and young adults – making it potentially attractive to advertisers or tech companies keen to capture this influential demographic.

In recent months, the startup has begun to sketch the outline of a business model. Co-founder and CEO Evan Spiegel expressed his interest in advertising at a technology conference in September and said he hoped to generate revenue before Snapchat’s next funding round. This month, the company also began rolling out new products, such as Stories, a feature that allows users to share several moments, or “stories,” with groups of friends that last for 24 hours.

Snapchat’s rising popularity is driving its valuation north, and several strategic players and institutional investors are circling it. According to people briefed on the matter, Facebook CEO Mark Zuckerberg tried to approach the start-up to discuss an acquisition above $1 billion. However, Facebook was rebuffed by Spiegel, who was not interested in selling his service to the social network, according to those people.

A Facebook spokesman declined to comment, noting that the company does not respond to rumors or market speculation.
Spiegel did not respond to a request for comment.

A new round of funding could bring high-profile international strategic players into the mix. Several people briefed on the matter said Tencent Holdings, the Chinese Internet company behind the WeChat messaging service, is expected to be a top contender for a stake. The company has been aggressively buying large stakes in U.S. tech companies as of late, recently leading an investment in Fab.com at a valuation north of $1 billion. Spiegel frequently speaks to the Chinese company, according to one person with knowledge of the matter.

Spokespeople for Tencent did not respond to a request for comment.

A valuation of over $3 billion would more than triple the company’s value since June, when it raised money from venture capital firms including Institutional Venture Partners, General Catalyst Partners, Benchmark Capital and Lightspeed Venture Partners.

Dennis Phelps, a general partner at IVP, called the investment “one of the most competitive financings we have been a part of in years” in a blog post he wrote at the time. Phelps pointed to Snapchat’s soaring popularity with young people and focus on mobile phones as indicators of a potentially large business.

AllThingsD earlier reported that Snapchat was considering a new investment that would value it at up to $3.6 billion.